PRD Quarterly Economic Property Report Ed 2 2013

Economic and Property Overview

At the time of writing the Australian Bureau of Statistics (ABS) has estimated that the residential population has surpassed 23 million. This is the result of a growing natural increase rate and a very high intake of overseas migrants. While rapid increases in the population will have its drawbacks, such as placing strain on existing infrastructure, it presents opportunities for Australia to grow and support its aging population, increase its skilled workforce and is a boost to the property industry in general. More residents equates to increased demand for dwellings, rising rental prices and home values. An appealing property market entices investors into the market, which assists with new dwelling development.

Looking towards the economy, the April 2013 release of CommSec State of the States report finds Western Australia as the strongest economy, ahead of the Northern Territory. Western Australia has lead the way on retail trade, population growth and equipment investment. It was second strongest on economic growth, construction work done and housing finance.

The Northern Territory finished top on four indicators: economic growth, unemployment, dwelling starts and construction work done. The Territory was second strongest on retail trade. The ACT economy remains third with the main strengths being dwelling starts and population growth. However, it is weakest on unemployment. New South Wales, Victoria and Queensland follow the ACT and have tracked very similar in terms of economic growth. The final tier (which has widened from the previous report) contains South Australia and Tasmania.

Across all states and territories, trend housing finance commitments are below decade averages. However, commitments in February were above the previous year in three of the measured states and territories.

The outlook for housing construction has improved, through state government grants for new construction and low interest rates. Dwelling starts are above decade averages in five states and territories.

Western Australias spell at the front of the pack as the fastest growing state has been impressive, but an investment slowdown will soon contract growth out west. With the worst of Queensland's State Government cutbacks likely to be soon over, Queensland could surge ahead to the top. At the bottom end, Tasmania's vicious cycle (with a lack of job gains leading to a lack of retail spending growth) is hitting that state hard, while post-election cost cutting could see growth in the ACT fall back notably in 2013-14.

Federal Treasurer Wayne Swan says the budget revenue has taken a $7.5 billion "sledgehammer" hit because of the high dollar and lower terms of trade. This is supported by research from the Grattan Institute, which estimates structural changes in the economy are likely to leave governments across Australia facing budget deficits of around four per cent of GDP for at least the next decade.
The Grattan Institute has warned that tax hikes or spending cuts totaling $60 billion in todays dollars will be needed to bring state and federal budgets back into balance in 2023.

However, Australian government debt as a percentage of GDP, is at 27 per cent, equating to the fifth lowest of the top 20 largest nations, and accounting to four-fifths of the world GDP. The debt is considered quite manageable with a bond rate of 3.4 per cent. Compared to Japans debt of 237 per cent, Australia is in a much better state. The forecasts for 2013 budget balance shows only South Korea as achieving a surplus, but Russia, Germany and Australia should all record a budget deficits of less than one per cent.